Finance Bill

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Mr. Flight: What the Minister has just said seems to be the nub of the matter, in that we all understand that the intent is that advisers will disclose to the Revenue schemes that will be become hallmark schemes, but he is also saying that if businesses use hallmark schemes, they will have a number, so they should disclose it. Anything that is not hallmarked will be left with the law, which goes back to what is disclosed, what is

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reasonable tax planning and what is potentially a scheme. If you look at the schedule, you find that virtually everything is to be regarded as a scheme unless it maximises tax. How practical are hallmarks for businesses with a turnover of more than £10 million, and what aspects of their normal tax planning must they disclose? That is still not clear.

The Chairman: Order. Mr. Speaker has asked us to be vigilant about ensuring that all hon. Members stick to the rules. The hon. Gentleman would have been correct in referring to me as ''you'' 30 years ago when I was a tax commissioner, but that is no longer the case.

John Healey: The situation is contrary to the hon. Gentleman's interpretation, and I shall detail the conditions that must be met for a hallmark to be listed. That is likely to be specifically drawn according to particular conditions and is contrary to his wide suggestion that anything that is not the fullest possible payment of tax will become a disclosable activity.

To finish the point about the burdens on business, the high de minimis will keep the additional burdens to a minimum, and businesses that are required to disclose have only to send an outline of their scheme and disclose the hallmarks involved to Customs.

Amendment No. 7 would require the Government to specify the tax advantage that would be obtained through use of a scheme bearing a particular hallmark at a time when they are adding new hallmarks to the law. In other words, it would require the Government to give details of the tax avoidance scheme in which the hallmark features. However, at the time of listing those hallmarks, the Government will not necessarily know the details of the arrangements by which the taxpayer seeks to obtain tax advantage. The very purpose of the hallmarks scheme and the measure is to discover those details, and that purpose would be removed and neutered by the amendment.

Mr. Burnett: Is the Minister saying that the disclosure provisions are so weak and insipid that an educated person in Customs and Excise would be unable to quantify the tax advantage?

John Healey: No. I am going to explain that the purpose of the arrangements is one of the conditions for notification under the scheme. If the hon. Gentleman bears with me, I shall come to that point later.

Amendment No. 8 would change the definition of a ''notifiable scheme'' so that a hallmark scheme is notifiable only when its main purpose is obtaining the tax advantage under the scheme that would be specified under the first amendment. As I have said, the Government will not necessarily know at that stage what the avoidance scheme is or exactly how it obtains a tax advantage.

A scheme is notifiable under the hallmarks provision only if all three of the following conditions are met. First, the main purpose of the scheme, or one of its main purposes, must be the obtaining of a tax advantage for any purpose. Secondly, a person must obtain a tax advantage that includes or is associated with a hallmark provision. Thirdly, the designated hallmarks associated with the scheme must comprise,

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for instance: confidentiality conditions limiting disclosure of a scheme; sharing the tax advantage with another party to the scheme or with the promoter; and fees payable to a promoter contingent on tax savings. Designated hallmarks included in a scheme must comprise: pre-payments between connected parties; funding by share subscriptions or loans between connected persons; construction work associated with property transactions between connected persons and certain offshore suppliers. It is highly unlikely that ordinary commercial transactions will come within all three requirements.

However, some arrangements may have to be reported under the hallmarks provision if the main purpose is to gain a tax advantage but there is, on examination, no tax avoidance. The process allows for that possibility, although we expect that such instances will be few, and that the vast majority of schemes reported are likely to be avoidance. In such instances, a decision will have to be made on whether the scheme is avoidance. That may involve further inquiries or the provision of further information by the business.

Mr. Burnett: Presumably—and I would like the Minister to confirm this—the decision as to whether a scheme falls within the rules is initially made by an official at Customs and Excise. What level of seniority and experience will that person have? Will the decision be appealable, and if so, to whom, or to which court or tribunal?

John Healey: At the risk of going over ground that we have already covered in a previous sitting, I shall explain to the hon. Gentleman that the notification scheme in clause 19 and schedule 2 simply draws to Customs' attention schemes that it would otherwise have to uncover in the normal course of assurance visits. The scheme triggers business as usual for the Customs officer. There will be the same inquiries, examinations, rights of appeal and decisions as there are at present. No change is made to that by the provisions in clause 19 and schedule 2.

The system proposed in the clause and schedule, which amendments Nos. 7 and 8 would severely curtail, is no different than if an avoidance scheme had come to Customs' attention via a VAT visit or through normal correspondence. The hallmarks disclosure provision simply brings to the attention of Customs matters that would otherwise remain hidden or be identified only much later. In all other respects, it is business as usual.

Far from helping the scheme work—or, as the hon. Member for Arundel and South Downs (Mr. Flight) argues, bringing proportionality to the proposal—the amendments would seriously undermine the operation of the measure as the Government intend. It would undermine this element of the Government's anti-avoidance strategy, which plays a vital part in securing revenues and creating a more level playing field for those businesses that fulfil their tax obligations. For that reason, I ask the Committee to reject the amendments.

Mr. Flight: There would not be much point in having a vote on the two amendments, but I will make one or two comments.

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First, in preparing the amendments, I consulted a leading anti-avoidance individual who had been working for the Treasury in that capacity for a long time, and was concerned about the issues that I have raised. The Minister's explanation is not entirely convincing, and there is not anywhere near an understanding out there about how the arrangements will operate. The schedule 2 provisions will operate broadly as I have described with regard to larger businesses. There is the danger of being snowed under, with people protecting themselves from being attacked while not reporting something that they should—that will be the gut reaction of every business. The Government and Customs and Excise are unwise if they do not realise that that is how people will naturally and rightly behave.

Benefit, rather than purpose, is the correct way to measure this. The Minister has said on many occasions that for any scheme its purpose is self-evidently to reduce the tax burden. However, greater specificity is needed about what is being provided for the Revenue under subsequent clauses.

I am left entirely unclear about the duty of a large business in respect of reporting hallmark schemes. If I am left unclear, I am arrogant enough to believe that businesses, too, will not be clear about the arrangements. I beg to ask leave to withdraw the amendment, but I hope that the Minister will think further about the arrangements. No doubt he will discuss them further with outside professionals, but as the schedule stands, the concerns that we have raised are valid.

Amendment, by leave, withdrawn.

The Chairman: May I point out that under Standing Orders, the moment a Member asks permission to withdraw an amendment, I should put that to the Committee? I allowed a little leeway just then.

Schedule 2 agreed to.

Clause 21

Reverse charge on gas and electricity

supplied by persons outside UK

Question proposed, That the clause stand part of the Bill.

10 am

Mr. Mark Prisk (Hertford and Stortford) (Con): The clause follows on from EU directive 2003/92, which will be implemented in January 2005. The purpose of that is to change the place of supply for the respective utilities and, therefore, the point of taxation. I have met representatives of the various utility organisations, including the gas and electricity industries, and their view is that the clause is a welcome step. As the Committee will realise, it mitigates an evident anomaly and is a direct response to the previous liberalisation of the markets for utilities. Accordingly, we have no particular problems with it and we welcome what is probably an overdue step.

Question put and agreed to.

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Clause 21 ordered to stand part of the Bill.

Clause 22

Use of stock in trade cars for consideration

less than market value

Question proposed, That the clause stand part of the Bill.

Mr. Prisk: We skate gently from gas and electricity to motor vehicles.

As I understand it, clause 22 changes the basis for valuing the taxable benefit of the private use of motor dealers' demonstrator cars and other cars that are in the ownership of a particular enterprise. I have three areas of concern and they reflect discussions with those who are affected. I have talked with representatives of the Society of Motor Manufacturers and Traders and I have listened to their concerns. It has become clear that the alleged avoidance method—the nominal valuation—is not something that they reported as being used by the society's member companies. Clearly, somebody must be using it, or the Government would not be alleging that there is avoidance.

I also understand that an estimated £5 million of additional revenue is anticipated from the closing of the alleged loophole. What studies have been made of who is engaging in the avoidance and what proportion of the market it represents? If the leading trade bodies are unaware of that particular approach, one wonders what is the evidence for the basis of the clause.

The experts in the field have asked whether the nominal value would have the effect of avoiding a significant VAT charge, as it is alleged. On subsection (2), the Chartered Institute of Taxation, which is a leader in this field, said:

    ''We are not altogether convinced that a nominal value (the sum of £1 for two years' use is cited . . . ) would in normal circumstances have the desired consequence of avoiding a significant VAT charge.''

It then went on to cite the case of the European Commission and France. It is not often that one hears those two litigants involved in the same thing, but it is a mild pleasure. I would like the Minister to respond to that particular case, because it was applied in UK law terms in the case of Customs and Excise commissioners and the Yarburgh Children's Trust.

The essence of the matter is whether the nominal value approach will secure the significant reduction in the VAT that is argued. I am sure that the Minister will be able to respond to that, but I am not sure whether he will be willing to. I hope that he will. I confess that it is not a case with which I am intimately familiar, but it is important. If the leading experts in the tax field question whether the effect of the clause is as stated, it is important that we understand what the Government's response is.

Lastly, there is the question of the definition of open market value. The proposal is to base it on price charge by comparing it to private rental businesses. Even someone who is not an expert in that particular field, such as myself, will understand that it is difficult to make a direct comparison between the typical contractual arrangements in the open market of car

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rental businesses and an employee who is making the occasional use of a demonstrator vehicle of their employers' ownership. If you were an employee who used a demonstrator car there would be restrictions that are not applicable in the former case. The car would be required to be available on the forecourt first thing every morning, and perhaps throughout the day. More importantly, there would be a constraint on the mileage useable by that individual; that is not a condition that most car rental businesses impose. There would also be a difference between the vehicle condition required by the employee of the car dealership and that required by the person renting a vehicle.

All those aspects affect value. They are different from the conditions of a private rental business and they change the open market value. The essence of my point is the concept of free use. Will the Minister explain the basis of open market value that the Government are applying here? Do the Government accept that making this direct comparison in value terms might not be appropriate? There are other forms; I draw the Committee's attention to that of the full cost of providing service, where the concept of free use is appropriate.

 
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